AGM 2022
Private & Confidential
Disclaimer – Important Notice
Fundsmith LLP (“Fundsmith”) is authorised and regulated by the Financial Conduct Authority and only acts for the funds
to whom it provides regulated investment management and transaction arrangement services. Fundsmith does not act
for or advise potential investors in connection with acquiring shares in Smithson Investment Trust PLC and will not be
responsible to potential investors for providing them with protections afforded to clients of Fundsmith. Prospective
investors are strongly advised to take their own legal, investment and tax advice from independent and suitably
qualified advisers. The value of investments may go up as well as down. Past performance is not a guide to future
performance. Fundsmith LLP is a limited liability partnership registered in England and Wales with number OC354233.
Its registered office address is 33 Cavendish Square, London, W1G 0PW.
1
Smithson Investment Trust Update - Performance
Performance Overview, % Return
2021
2020
2019
2018*
Inception to
31.12.21
Annualised to
31.12.21
Smithson NAV1
+18.9
+31.4
+33.2
-5.8
+96.1
+23.4
Smithson Share Price
+18.1
+31.7
+29.8
+0.0
+102.0
+24.5
Equities2
+17.8
+12.2
+21.9
-8.3
+47.8
+13.0
UK Bonds3
-4.5
+4.6
+3.8
+2.1
+5.9
+1.8
Cash4
+0.1
+0.3
+0.8
+0.2
+1.4
+0.4
1Source:
Bloomberg, starting NAV 1,000.
World SMID Index, £ net, source: www.msci.com
Bond Indices UK Gov’t 5-10yr, source: Bloomberg. 4Month £ LIBOR Interest Rate source: Bloomberg. *From 19.10.18
3Bloomberg/Barclays
2MSCI
Source: Bloomberg
Day before launch (18th October 2018) rebased to 100.
Past performance is not a reliable indicator of future results. The value of your investment may go up as well as down and you may not get back the amount
of your original investment.
2
Smithson Investment Trust Update – Top holdings and contributors
Top 10 Holdings as at 31-Mar-22
Top contributors & detractors in 2021
• Sabre (US)
Top 5 Contributors
• Rightmove (UK)
Security
Country
Sector
• Recordati (IT)
Fortinet
United States
Information Technology
4.1
Nemetschek
Germany
Information Technology
1.9
Equifax
United States
Industrials
1.8
Domino’s Pizza Group
United Kingdom
Consumer Discretionary
1.7
AO Smith
United States
Industrials
1.6
Security
Country
Sector
Sabre
United States
Information Technology
-1.5
Ambu
Denmark
Health Care
-0.9
IPG Photonics
United States
Information Technology
-0.9
Simcorp
Denmark
Information Technology
-0.9
Paycom Software
United States
Information Technology
-0.2
• Fortinet (US)
• Temenos (SW)
• Fevertree Drinks (UK)
• Verisk Analytics (US)
• Ansys (US)
• Cognex (US)
• Technology One (AUS)
Contribution %
Top 5 Detractors
Contribution %
3
Smithson Exposure Breakdown
Sector weightings: 31-Mar-22
Sector
Country weightings: 31-Mar-22
Smithson
MSCI W SMID
Information Technology
46%
13%
Industrials
19%
Consumer Discretionary
Health Care
Smithson
MSCI W SMID
USA
46%
60%
North America
38%
17%
UK
19%
6%
Europe
38%
12%
11%
Italy
7%
1%
Asia Pacific
18%
12%
10%
Australia
7%
4%
Eurasia, Middle East, Africa
3%
Communication Services
4%
4%
Switzerland
6%
2%
Latin America
2%
Consumer Staples
4%
4%
Germany
6%
2%
Financials
3%
13%
Denmark
5%
1%
Real Estate
9%
New Zealand
3%
0%
Materials
9%
Sweden
2%
2%
Utilities
4%
Other
0%
22%
Energy
5%
Cash
0%
0%
Cash
Country of listing
Sales exposure by region: 31-Dec-21
Region
Smithson
0%
Data for MSCI World SMID is market cap weighted.
Smithson Portfolio exposure based on weighted position sizes. For sales exposure by region, percentage splits are shown ex-cash, based on most
recently-available full year data and portfolio weights as at 31-Dec-21.
Data may add up to more or less than 100% due to rounding.
4
1Q22 Update
Key issues currently affecting stock market:
• Inflation
• Rising interest rate expectations
• Fears of recession
1Q22 Sector Performance (%)
1Q22 Performance
Smithson NAV
-16.9%
MSCI World SMID
-4.0%
MSCI World Large Cap
-2.0%
Performance is given as percentage change in GBP
Smithson contributors & detractors 1Q22
Sectors
MSCI W
SMID
Smithson
weight (%)
Energy
+42%
-
Utilities
+7%
-
Materials
+5%
-
Real Estate
-2%
-
Financials
-2%
3%
Communication Services
-2%
4%
Consumer Staples
-3%
4%
Industrials
-7%
19%
Health Care
-10%
12%
Information Technology
-11%
46%
Consumer Discretionary
-14%
12%
Top Contributors
%
Sabre
1.6%
Addtech
0.2%
Qualys
0.2%
Cognex
0.2%
Rollins
0.1%
Top Detractors
%
Fevertree Drinks
-1.6%
Masimo
-1.4%
Temenos
-1.2%
IPG Photonics
-1.1%
Rightmove
-1.1%
5
Smithson Investment Strategy – Same as Fundsmith
Buy good companies
Don’t overpay
Do nothing
6
Buy Good Companies – Smithson Portfolio Look-through
LTM figures
Smithson Investment Trust
MSCI SMID
ROCE
33%#
8%
Gross Margin
67%
34%
Operating Profit Margin
24%
1%
Cash Conversion
112%
88%
35x
5x
Interest Cover
Data for the MSCI World SMID Cap Index is shown ex-financials, with weightings as at 31.12.2021.
Data for MSCI World SMID Cap Index is on a weighted average basis, using last available reported financial year figures as at 31.12.21
Data for Smithson portfolio is on a weighted average basis, ex-cash, using last available reported financial year figures as at 31.12.21
Interest cover (EBIT ÷ net interest) data for Smithson and MSCI SMID is done on a median average basis.
# LTM ROCE for Smithson excludes Rightmove, which had a return of >180%. Including Rightmove, the weighted average ROCE would be 41%.
7
Don’t Overpay
We compare free cash flow yields now to what we think they will be in 4-5 years’ time. We then select the best combination of
current value and future growth, allowing for potential risks that the business may face.
We compare the stocks with:
• Each other
• The market
• Bonds
Historical Neutral FCF Yield
31-Dec-18
31-Dec-19
31-Dec-20
31-Dec-21
Smithson Investment Trust
3.9%
3.2%
2.9%
2.0%
MSCI World SMID Index (ex-financials)
4.2%
3.5%
3.2%
2.5%
In the 12 months to the last reported quarter (or half) for our portfolio companies, weighted average neutral free cash flow per
share growth for Smithson was 21%.
Source: Fundsmith research, Bloomberg.
Neutral FCF yield is operating cash flow less maintenance capex.
For both Smithson and the MSCI World SMID Index, Neutral FCF yield is measured on a weighted average basis (note Smithson weights are grossed up
to an ex-cash basis), based on the latest available full year data as at the stated date.
Note that the Smithson Neutral FCF Yields at 31-Dec-18 and 31-Dec-19 were restated last year to reflect the above calculation methodology. Previously
disclosed yields (4.2% and 3.4% respectively) were based on trailing 12 month free cash flows to the stated date, which involved some use of estimated
cash flows due to lags in reporting.
8
Do Nothing – Theory vs. Practice
What we say:
What we do:
• Ideal holding period is forever
• Voluntarily exit a position only if:
– Management makes bad capital allocation
decisions
New Companies Bought
Companies Sold
2019
2020
2021
1Q 2022
Fevertree
Drinks
Rational
Qualys
Fortinet
Rollins
Wingstop
Moncler
Addtech
CDK Global
Check Point
Abcam
CHR Hansen
AO Smith
– Fundamental reappraisal of investment
case
Voluntary Turnover
6.1%
21.6%
9.5%
-
– Valuation becomes too expensive
OCF
1.05%
0.97%
0.96%
-
– Superior investment opportunity identified
Dealing costs*
0.04%
0.03%
0.02%
-
New shares issued
32.3 million
26.9 million
30.3 million
5.4 million
Proceeds from new
issuance (net of costs)
£377 million
£398 million
£534 million
£93 million
2.9%
2.9%
2.0%
1.2%
• Some portfolio turnover will be involuntary,
e.g. in the event of a takeover
Average premium to NAV
* Voluntary dealing costs (excluding new share issuance)
2022 data is for the year to the end of March
9
Appendices
10
Portfolio Management Details
Smithson Portfolio Characteristics
Risk Management & Advisors
Fund Ticker
SSON
Currency Hedging
No
Typical No. of Holdings
25-40
Derivatives
No
Current No. of Holdings (31.03.22)
32
Gearing
Up to 15% short term
Median company founded
1971
Portfolio Concentration
Max 10% in one company
Median market cap (at 31.03.22)
£6.8bn
Counterparty Concentration
No more than 20%
NAV
Published daily in FT, Telegraph & at
www.smithson.co.uk
Continuation Policy
Reporting
Interim & Annual
Board
Annual Shareholder Meeting
Yes
OCF and TCI to 31.12.21
0.96% and 0.98%
AMC
0.90%
Est. Portfolio Yield
At board discretion if discount >10%
>1 year after 4th year
Diana Dyer Bartlett - Chairman
Lord St. John of Bletso
Jeremy Attard-Manche
Sponsor & Broker
Investec Bank
Legal Adviser
Travers Smith LLP
Auditor
Deloitte LLP
0.5%
Administrator
Northern Trust
Performance Fee
No
Registrar
Link Asset Services
Portfolio Turnover
Low
Depositary
Northern Trust
Reference Index
MSCI World SMID Cap Index, £
Co. Secretary
Praxis IFM
AIC Sector
Global Smaller Companies
11
ESG Policy
• Our approach to ESG considerations is to take into account from the start of our research process all of the factors that may
impact the potential for a business to sustain its returns into the future
• Environmental
– 59% of portfolio companies report greenhouse gas emissions. Lowest emissions: Rightmove at 300t. Highest emissions:
Geberit at 206kt. Average emissions for portfolio companies of 37kt compared to the MSCI World average of 4.6mt, or 14t per
£m revenue vs 84kt per £m revenue.
– Companies committed to significantly reduced or to net zero carbon emission targets include Ambu, MSCI and Verisk, and
some, such as Domino’s Pizza Group and Equifax, link ESG measures to management pay
• Social
– Women make up 26% of portfolio company Boards, which compares to the global average of 27%
• Corporate Governance
– 34% of proxies were voted against management recommendation on remuneration policy
• Smithson is represented on the Fundsmith Stewardship & Sustainability Committee
• Fundsmith is a signatory to the UN PRI and UK Stewardship Code 2020
12
The Smithson Team
Simon Barnard CFA
PORTFOLIO MANAGER
Will Morgan CFA
ASSISTANT PORTFOLIO MANAGER
Jonathan Imlah
ANALYST
Simon Barnard joined Fundsmith in September
2017. He started his career at Goldman Sachs
Asset Management in 2003 as a research
analyst on the technology and industrial sectors.
He moved to the consumer sector in 2008 and
became the Global Lead Portfolio Manager for
the consumer discretionary sector in 2012. In
2014 he was named Portfolio Manager of the
‘Global Income Builder Fund’, a multi-asset
strategy. Upon its launch in 2016 he became
Portfolio Manager of the ‘Global Millennials
Fund’, a concentrated global equity growth fund.
Simon has a First Class degree in Economics
from the University of Cambridge and is a CFA
charter holder.
Will Morgan joined Fundsmith in July 2017. He
previously spent 17 years at Goldman Sachs. He
began his career there in 2000, initially in the
asset management division, before moving to
equity sales in 2002. In 2003 he joined the
Global Investment Research division as an
analyst covering the insurance sector, and
became head of the team in 2008. In 2011 he
moved to lead coverage of the Construction &
Building Materials sector, becoming a Managing
Director in 2013 and deputy head of the
Industrials business unit. He became a sector
specialist for Autos and Industrials in 2015. He
has a First Class degree in Economics & Politics
from the University of Bristol and is a CFA
charter holder.
Jonathan joined Fundsmith in December 2013
from Canaccord Genuity where he was the lead
Technology analyst since 2010. He was
previously at Altium Securities where he covered
technology for 6 years, latterly as Head of
Research. Prior to Altium, he worked in the large
cap technology team at Dresdner Kleinwort
covering pan European IT services. Jonathan
was Techmark analyst of the year in 2007 and
was number 1 or 2 in his sector in the FT
Starmine survey between 2006 and 2010. Prior
to taking up a career as an analyst Jonathan was
a country investment report writer working in
Spain, India, Russia, Hungary, Brazil, Peru,
Zimbabwe and Guatemala. Jonathan has an
MBA from INSEAD and a degree in French and
Philosophy from the University of St Andrews
and is a fluent Spanish speaker.
13